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What is Section 44AD?

Section 44AD of the Income Tax Act, 1961 allows eligible small businesses in India to declare income on a presumptive basis. If your turnover is under ₹2 crore (or ₹3 crore with digital receipts), you can declare profits at 6% (digital) or 8% (cash) without maintaining books of accounts.

How Does This Tool Help?

• 🧾 Upload your bank statement in CSV format
• 🔍 Automatically classify each credit as Business, Capital, Loan, or Other
• 📊 Reconcile GST turnover with Income Tax turnover under Section 44AD
• 📁 Generate a breakdown report of mismatches for audit or ITR filing

What Happens If Bank Credits and Income Tax Turnover Don’t Match?

When the total credits shown in your bank statement exceed the turnover declared in your Income Tax return under Section 44AD, it can lead to discrepancies that attract scrutiny from the Income Tax Department.

Consequences of such mismatch include:

• Issuance of notice or query from the tax authorities for unexplained income or under-reporting.
• Possible demand for detailed explanations and documentary evidence to justify the excess credits.
• Risk of reassessment and additional tax liability if income is found to be understated.
• Penalties and interest may be imposed under the Income Tax Act.
• Increased difficulty in smooth and hassle-free Income Tax Return (ITR) filing and audits.

This tool helps you identify and reconcile these mismatches early, so you can maintain accurate records and avoid such complications.

Who is Eligible for Section 44AD Presumptive Taxation?

Section 44AD of the Income Tax Act, 1961 offers a simplified taxation scheme for small businesses and professionals to declare income on a presumptive basis, without maintaining detailed books of accounts.

Eligible Persons:

• Resident Individuals (including Hindu Undivided Families and partnership firms, but not LLPs)
• Persons engaged in eligible business (not profession)
• Business turnover or gross receipts should not exceed ₹2 crore in the financial year

Ineligible Cases:

• Non-residents
• Limited Liability Partnerships (LLPs)
• Businesses earning income in the nature of commission or brokerage
• Agency businesses
• Persons who have claimed deduction under sections 10A/10AA/10B/10BA/80HH to 80RRB

Deemed Income under Section 44AD:

• 8% of total turnover/gross receipts (for cash transactions)
• 6% of total turnover/gross receipts (for digital receipts)

By opting for Section 44AD, you are not required to maintain books of accounts under Section 44AA or get tax audit done under Section 44AB.

Who is Not Eligible for Section 44AD?

The following individuals, businesses, and categories are specifically excluded from opting for the presumptive taxation scheme under Section 44AD:

• Non-Resident Individuals or Entities – Only Indian residents can opt.
• Limited Liability Partnerships (LLPs) – Section 44AD is not applicable to LLPs.
• Professionals – Persons engaged in professions as per Section 44AA(1) (e.g. doctors, lawyers, architects, CAs) must opt for Section 44ADA instead.
• Agency Businesses – Any income earned by a person acting as an agent is excluded.
• Commission or Brokerage Income – Businesses earning income in the form of commission or brokerage are not eligible.
• Businesses claiming deductions under specific sections such as 10A, 10AA, 10B, 10BA, or 80HH to 80RRB.
• Businesses with turnover exceeding ₹2 crore in a financial year.

⚠️ Attempting to claim Section 44AD despite falling in the above exclusions may lead to disallowance of presumptive income and trigger a mandatory tax audit under Section 44AB.

What is “Total Turnover or Gross Receipts” under Section 44AD?

Under Section 44AD of the Income Tax Act, the presumptive income is calculated as a fixed percentage of the “Total Turnover or Gross Receipts” of the business during the financial year.

✅ What should be included as "Total Receipts"?

• All sales (cash and digital) of goods or services rendered
• Trade advances received during the year
• Amount received for goods sold or services performed — even if received later
• Receipts through UPI, cheque, NEFT, credit cards, and cash

🚫 What should not be included?

• Capital receipts (e.g., loan received, sale of assets)
• Refunds or reimbursements
• GST or other taxes collected on behalf of the government
• Amount received for personal purposes

🧮 How to determine Total Receipts practically?

You can determine total turnover by:

• Summing all business-related credit entries from your bank statement
• Adding cash sales that were not deposited in bank
• Excluding non-business credits like loans, capital introduction, or asset sale

Formula:
Total Receipts = (Business Credits in Bank Account) + (Cash Sales Not Deposited)

⚠️ Note: Proper classification and documentation of receipts is essential to avoid scrutiny under Section 44AB and ensure smooth ITR filing under Section 44AD.

Why Reconciliation of GST Turnover and Total Receipts is Needed

If you're opting for presumptive taxation under Section 44AD and are also registered under GST, it’s crucial to reconcile the turnover declared in GST returns with the total receipts considered under Section 44AD. Any mismatch can trigger scrutiny or notices from the Income Tax Department.

📌 Why is Reconciliation Important?

• ✔ Ensures consistency between GST filings and Income Tax return
• ✔ Avoids misreporting of income or under-reporting turnover
• ✔ Prevents audit triggers or penalty notices from authorities
• ✔ Helps justify lower or higher receipts claimed in ITR

🔍 Common Causes of Mismatch:

• ✅ GST Turnover includes tax amount, but 44AD considers tax-exclusive receipts
• ✅ Time difference in invoice date vs. actual payment received
• ✅ GST return may include advances, which are not yet realized in the bank
• ✅ Bank receipts may include non-GST business income (e.g., exempt or unregistered income)
• ✅ Cash sales may not reflect in bank but are part of total receipts

📘 How to Reconcile:

1. 🧾 Download GSTR-3B or GSTR-1 summary for the financial year
2. 💳 Compare with bank statement credits (excluding loans, capital, etc.)
3. 💰 Add cash receipts not reflected in bank but included in GST
4. ➖ Deduct GST collected from GST turnover to arrive at net receipt
5. 📊 Reconcile differences with a working note showing reasons

✅ You must report actual total receipts (cash + bank) in your presumptive income computation under Section 44AD, not just what is shown in GST returns.

Frequently Asked Questions (FAQ)

1. Who can use this tool?
Small businesses, traders, freelancers, and consultants eligible under Section 44AD.

2. Do I need a CA to use this?
No, this tool is designed for easy self-use with minimal tax knowledge.

3. What file format is accepted?
Only CSV files are supported. Make sure your bank statement is exported in .csv format.

4. Is my data secure?
Yes. Your uploaded files are only used to process your classification and are not stored permanently.